International Journal of Business and

General Management (IJBGM)

ISSN (P): 2319-2267; ISSN (E): 2319-2275
Vol. 8, Issue 5, Aug - Sep 2019; 1-16
© IASET

AUDIT OPINION AND AUDIT FEES AFTER THE SCANDALS OF ENRON: EMPIRICAL
VALIDATION IN THE FRENCH CONTEXT

Soltani Lynda
Laboratory Lartige, Faculty of Law Economics and Management, University of Jendouba, Jendouba, Tunisia

ABSTRACT

This study examines the effect of regulatory changes on audit quality in the French context. The literature shows that audit
fees represent one of the factors which influence audit quality by representing public data elements which can influence the
earnings management. The objective of this research lies in the study of the effect of regulations regarding audits on the
number of audit fees as an element which explains the independence of the auditor.

A list of hypothesis related to the approached problems is proposed followed by an overview of the different
theoretical propositions which are in place. From a sample of French companies in the SBF 250 over the period 2002-
2011, the results show that the analysis of the determinants of audit fees which is directly related to the acceptance of the
auditor to carry out their duties, our results show that the audit fees are determined by the organizational factor of the
company, financial health, and existence of Big auditor.

KEYWORDS: Regulation, Audit Fees, Abnormal Audit Fees, Audit Quality

Article History
Received: 28 Jun 2019 | Revised: 09 Jul 2019 | Accepted: 13 Jul 2019

INTRODUCTION

Regulators were worried by the influence of audit fees on the independence of the controllers of the accounts. The
emergence of new regulations affirmed that auditors must be independent. The latter find that the amount of the audit fees
constitutes for them the first data element on the audited company. This is the same as for the investors.

The auditor can have access to financial information and company accountants according to his strategic choice
during the development of his evaluation of internal control and the total performance of the firm. This implies that the
expenses of the auditor’s inspection increase with the efforts carried out in order to decrease audit risk by formulating an
unqualified audit estimate on financial statements which contain inaccuracies and important anomalies.

The audit expenses are dissociated into two types of fees. First, are the real audit fees which reflect the level of the
effort carried out by the legal controller as well as the risks and the complexity of the audited. Second, are the abnormal
audit fees. The unexpected expenses which can be negative or positive. These qualify the relationship between the auditor
and the audited.

All the previous research shows that customers can apply pressure on the auditors. This may lead to
enormous operation changes for the auditors during the execution of their missions. For this purpose, the number of

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audit fees are decreased so that auditors must reduce work hours affecting the capacity to detect the anomalies and
frauds of the company’s financial statements. On the other hand, other researchers have found that audit quality
depends on the means and necessary tools at the time of the control stage and that their absences affect the amount of
the audit fees.

The statutory audit of the accounts exists with the aim of meeting the needs of the users of the financial
information and the accountant. This has the important responsibility of creating confidence between the auditor and the
various recipients of the company. As part of the execution of his function, the auditor has the right to observe expenses of
inspection according to the size and complexity of the audited, and the risk related to the company in order to maintain the
confidence of the users of the information.

The principal objective of this research is to define the determinants which influence the amount of the audit fees.

Choi and Al (2008) carried out research on audit fees, specifically evaluating the role of the legal rules relating to
their determination. They made the point that the risk factors specific to each country also influence audit costs. Their
conclusions found a positive effect on the association between audit fees and the level of independence of the auditor.

In addition, studies carried out on a sample of American companies (Dopuch and al. 2003) in order to test the
impact of new regulations on the publication of audit fees have as an objective, the presentation of information for different
recipients of the company. Particularly, good decision-making investors find that the publication of audit fees does not
reflect the real independence of the auditor.

Although the role of regulations in guaranteeing a better quality of financial information has received some
attention in the literature (for example, Cohen, Krishnamoorthy, and Wright, 2004), its impact on the costs of audit fees in
various countries have not been explored. The regulation which is generally intended for the disclosure of good
information can provide details on the methods of countable evaluation.

Moreover, they also define the responsibility of auditors to ensure a better quality of communicated information.
Thus, the development of regulations is likely to change the information environment Furthermore; non-observance can
involve penalties for the auditors. Bushman and Piotroski (2006) support that strict regulations of values provide strong
incentives for auditors taking the right direction. Because nonconformity of regulations can subject auditors to sanctions, it
can involve a higher risk of control (for example, Goshen and Parchomovsky, 2006; Mahoney, 1995).

The development of regulations for the protection of investors has a significant impact on audit fees since auditors
present an effort of additional checking to reduce the risk of an audit.1

Some studies which provide evidence of audit fees and not the audits themselves influencing independence include Higgs
and Skantz, 2006; Krishnan et al., 2005; and Francis and that, 2006.

Economic theory suggests that incentives for the auditors compromising their independence depend on the
importance of the customer and not on the ratio of expenses. (DeAngelo, 1981;Ashbaugh et al., 2003;Chung and Kallapur,
2003). Public attention nevertheless focused on the ratio ofexpenses rather than that of oversight causing the perception of
the independence of the inspectors.

In the same direction Aloke Ghosh, Sanjay Kallapur, and Doocheol Moon (2009), examined the relationship
between audit expenses and not that of perception to the independence of the auditors 2.

Impact Factor (JCC): 6.2543 NAAS Rating 3.51

Audit Opinion and Audit Fees after the Scandals of Enron: Empirical Validation in the French Context 3

Audit fees in and against part of the efforts carried out by the auditor indicate the risks related to the company. For
the factor of the publication of the expenses of inspection shows the risk related to the business of the auditor by observing
the behavior of the legal controllers. Their contribution to the companies ensures better decisions on the global level of
financial information and company accountants.

More precisely, the presence of high audit fees can create the comprehension of the elevated level of the effort of the
work of the audit, but it can also lead to a perception of the dependence of the auditor by contribution to the audited one.

Cleave S. Lennox (1999) expects that “the disclosure of information of the fees of audit could be used to announce
greater independence and a better quality of audit”.

All the more, the publication of audit fees evolves by constituting an essential component of the indication of the
quality of the financial information and will be a subject of interest in a turbulent environment characterized by complexity
and a series of crises and financial scandals.

This subject will be very important within the many countries following new regulations as a result of the Enron
scandal. These regulations aim to improving the quality of financial information and accounting. It will reinforce the
quality of any type of control inside and outside the company, particularly the improvement of the quality of the audit.

Specialized literature breaks up the real expenses of inspection into two components, namely the expenses of normal
inspection and the unexpected component called abnormal fees of inspection.

Since Simunic (1980), the literature of the expenses of inspection generally puts forth the hypothesis that the
expenses of checking are a positive function of three factors specific to the customer. These include the size, complexity,
and specific risk of the customer.3

Jong-Hag Choi, Jeong-Good Kim, and Yoonseok Zang (2010) think that the association between abnormal audit
fees and audit quality is negative when the abnormal expenses of inspection are positive (i.e. when the real expenses of
inspection are higher than the expenses of normal inspection). This is because excessive inspection expenses can create
incentives for auditors to agree to customer pressure, thus eroding audit quality. However, these authors have found that
the association between paid fees to auditors and audit quality (fresh association and quality) is unimportant when
abnormal audit expenses are close to zero or negative. Consequently, auditors have few incentives to compromise
inspection quality in this case.

Most former studies on the association of audit fees and audit quality turned their attention to the effect of the
service and not auditor independence.

However, overly high inspection expenses can influence the decisions of the auditors' certificates. Moreover, even
if auditors are not authorized to provide certain services other than the audit to the same customer, as required by the
Sarbanes-Oxley law of 2002, audit quality can still be decreased by excessive inspection expenses. However, neither
regulators nor academics have given sufficient attention to the effect of excessive audit expenses on audit quality.

Former research has provided contradictory data on the effect of audit fees on audit quality. For example, Frankel
et al. (2002) reported that the management of discretionary results is negatively associated with audit fees. This suggests
that auditors are less likely to give an estimate of financial information skewed by customers with high expenses than by
customers with moderate expenses.

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4 Soltani Lynda

Ashbaugh and al. (2003) has advanced an association between measurements of audit expenses and discretionary
management of result by taking those measurements as a starting point Jong-Hag Choi, Jeong-Good Kim, and Yoonseok
Zang (2010) found that it is necessary to present association of the expenses and quality by using a wide presentation of
given audit fees and other expenses of metric checking, namely, the abnormal audit fees instead of real audit fees.

The results of the work of these authors reveal that the association between the indicator of audit quality and
abnormal audit fees is negligible. These results are coherent with the conclusions of former studies which use a similar
method (for example, Ashbaugh et al. 2003; Chung and Kallapur 2003; Reynolds and al. 2004).4

The literature admits that a company can improve its estimate by paying more audit fees to its auditor, without
changing its auditor. The investigation of Chen, Su, and Wu (2005) on companies which received qualified opinion
between 2000 and 2002, notes that a high abnormal audit fee is associated with an improvement of the auditor’s estimate.

In continuation, Therefore, their results indicate indicates that the auditor independence of the listener can be
negatively affected negatively by the economic incentive provided by its customers.

Extending their sample to include all the companies in the Chinese stock market and employing several
measurements of various abnormal audit fees, Fang and Hong (2008) also found a positive relationship between abnormal
audit fees and the improvement of audit estimates.

However, the inclusion of all companies in decline led to skewed estimate results, wherein the companies which
received an unqualified estimate from the preceding exercise were unable to improve their estimates. The correct method
would be is to exclude these companies, while following the approach adopted by Chen, Su, and Wu (2005), or in an
equivalent way, to include indicating variables for the audit estimate from the preceding exercise. When Fang and Hong
(2008) excluded the companies with an unqualified estimate in their study, however, it did not have a more significant
relationship between abnormal audit fees and the improvement of the audit estimate. This was true even though their
sample size was larger than that of Chen, Su, and Wu (2005)5.

METHODS

Simunic (1980), Palmrose (1986a), Firth (1985), and Low, Tan, and Koh (1990) think that large companies normally carry
out a significant number of transactions and consequently require a larger effort of work. Deposer (2000) points out that
large companies need the requested information. All related work found a positive relationship between size and audit fees.

Vivien Beattie, Alan Good acre, Ken Pratt and Joanna Stevenson (2002) add that an audit of financial statements
implies the examination of the accountancy, the internal monitoring system and the financial transactions of the
organization. To increase the organizations will generally undertake several operations and to have greater credit and
passive assessment, which requires more work. Thus, one expects that larger companies would be generally associated
with more important audit fees. In private sector studies, the size of the audited entity was often measured by total
company credit (for example, Taylor and Baker, 1981; Brinnetal 1994; Firth, 1997) and from time to time per total sales
(for example, Haskins and Williams, 1988;Chan and al. 1993). In studies of local government audits, the population was
used as a measure of size (for example, Rubin, 1988; Baber et al.1987)6.

Then the financial health of the company measured by the output of the company is measured by the ROA ratio
which reflects the economic profitability of the company. Jong-Hag Choi, Jeong-Good Kim, and Yoonseok Zang (2006)

Impact Factor (JCC): 6.2543 NAAS Rating 3.51

Audit Opinion and Audit Fees after the Scandals of Enron: Empirical Validation in the French Context 5

note that the ROA ratio is directly related to audit fees.

The economic rate of profitability (ROA) acts negatively on audit fees. This result, also found by Goodwin-
Stewart and Kent (2006) and Broye (2009), can be explained by the fact that auditors require higher fees for the least
profitable companies, i.e. those which present a possible hazard of insolvency.7

The working capital ratio is an indicator of a company’s solvency and generally represents its aptitude to refund
its debts.

Jong-Hag Choi, Jeong-Good Kim, and Yoonseok Zan(2006), show that in accordance with the former research of
Simunic in 1989, liquidity is negatively associated with audit expenses.

Agency costs between shareholders and creditors increase with the company’s level of financing. In this case, the
auditor will increase his auditing effort while the debt level increases. This will cause a rise in its fees (Evils, 2006).

Moreover, by increasing the debt, the audited firm’s risk of bankruptcy is measured by the level of increased debt in the
company because the company is involved in debt, the risk of loss is important. This should result in the requirement of a
large effort by the auditors and thus have a positive relationship between debt and rise in audit fees. (Simunic and Stein,
1996).

Generally speaking, regarding the formless variable of loss in the company’s financial situation, the more that this
variable is raised, the higher the risk. With respect to this, several researchers (Eterson and Zéghal, 1994; Pong and
Whittington, 1994; Simunic and Stein,1996), have shown that audit fees increase with a disturbance in the company’s
financial situation, particularly with an increase in the firm’s losses.

In addition in regards to the complexity of the customer company customer, the preceding studies (Francis and
Simon, 1987)8 have shown that there is a strong probability that the level of work involved in the audit increases with the
complexity of the company. This justifies the increase in audit fees. That is also confirmed in the study of Lawrence J.
Abbott, Susan Parker, Gary F. Peters and K. Raghunetan in 2003.9

Researchers have shown that stocks and claims generally represent expensive credits to certify. This sometimes
requires sophisticated techniques of audit and pledges of sincerity regarding disseminated financial information (Abbott
and al. 2003; Piot, 2001; Kane and Velury, 2004). This dimension is measured by the weight of stocks and claims in total
assets.10

In the end, the characteristics of the audit can be summarized in the identity of the auditor, Joint audit Membership
for in the BIG Four and Qualified audit estimates of the previous year.

Audouss and coulier in 2008 who have taken as a starting point the former work advanced by Firth (1979), thinks
that the large offices of Big Four auditors can incite their customers to publish more exhaustive financial information of
better quality of the same opinion, Clarkson and al. (2003) have stated that Big Four auditors incite the customer
companies to publish voluntary information with the aim of preserving their reputation.

Substantial research has presented a positive relationship between the number of audit fees and membership of
the office belonging to one of the four great global area networks.

These effects combine to define the positive bond between Big Four auditors and fees.

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Evils (2004) has raised the question of the remuneration of auditors in France and notes for this purpose an
important difference between the fees of the two auditors. He has explained this difference betweena principal auditor and
an auditor whose role can be regarded as secondary. The literature admits that the fact of having an Big Four auditor or the
fact of having two of them involves an increase in the number of audit feespaid by the company.

The qualified audit estimate is presented in the form of a recognition of the existence of an elevated level of risk
for one year and is highly probable to continue throughout the following years. In order to accept this risk, the auditor
requires very high fees (Simunic, D.A., 1980).11

The objective of this research consists of studying the determinants of the number of audit fees as a criterion of
auditor independence. More particularly, it is a question of identifying the responsibility of the independence of the audit
as a mechanism of monitoring and insurance of control following the amount of the audit fee forFrench companies.

While taking as a starting point the results of previous studies on the emergence of new regulations we formulated
our tested hypotheses as follows:

The economic variables are distinguished according to their types. These types include information on the
financial health of the customer company, its risk level, and size, the existence of auditors belonging to the international
network and their type of formulated opinion from which we retain the hypotheses resulting from our starting theory,
starting with:

In continuation with regard to the financial statement of the company we admit the following hypotheses :

H1: the amount of audit fees is related to the financial situation of the company.

We make the hypothesis that the amount of audit fees is associated with the disturbance of the company’s
financial situation and that the latter is identified by the following variables:

• Company output (reduction in disturbance);

• Company liquidity (reduction in disturbance);

• Company debt (increase in disturbance);

• Loss of company results (increase in disturbance).

Other economic variables inform about the level of complexity of the customer company which contributes a
positive bond with the number of audit fees:

H2: the number of audit fees related to the complexity of the company.

The amount of audit fees constitutes an indicator of the quality of the audit, particularly the independence of the
auditor which is related to the level of complexity of the company identified by the following variables:

• The inventory turnover of the company;

• Receivables Turnover of the company

All the more, in addition to these economic variables is another type of variables which shows auditor
characteristics while informing on the level of its independence. This consequently influences the amount of the audit fee.

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Audit Opinion and Audit Fees after the Scandals of Enron: Empirical Validation in the French Context 7

H3: the amount of audit fees is related to auditor characteristics.

Characteristics of the auditor are identified by the following variables:

• The existence of a Big 4 auditor (positive association);

• Joint audit Membership for in the BIG Four (positive association);

• The certification of a qualified audit for the previous year (positive association).

Finally, the organizational factor of company size which is positively related to the number of qualified audit fees
brings us to our last hypothesis:

H4: the amount of audit fees increases with the size of the audited company.

FEEit = β0+β1 ROAit+ β2 LIQUIit + β3 DEBTit + β4LOSSit +Β5 INVENTit +

β6 RECEIVit + β7 1BIGit + β8 2BIGit + β9 OPINIONit-1+ β10 SEIZEit + εit

Dependant Variable

The dependant variable is the amount of the audit fee reflected by the second criterion of independence for the auditor
generally supported by the audit quality where one finds:

FEE: measured by the Napierian logarithm “ln” of the amount of the audit fee.

Independents Variables

• ROA: a ratio of output measured by Bottom line/Total assets.

• LIQUI: working capital ratio is the relationship between the short-term credits of a company to its liabilities in the
short run.

• DEBT: Rate of debt, total Report of the debts and total credit.

• LOSS: this variable is a binary variable coded by 1 if its existence is a countable loss during the exercise and 0 if
not.

• INVENT: Inventory turnover measured by the relationship between the cost of the sold goods and stocks of the
company.

• RECEIV: Receivables Turnover measured by the relationship between credit sales and the clients' company
accounts.

• 1BIG: binary variable coded 1 if one of the regulatory Joint audits for the accounts within the customer company
belongs to the BIG Four and 0 if not.

• 2BIG: binary variable coded 1 if two of the regulatory Joint audits for the accounts within the customer company
belong to the BIG Four and 0 if not.

• OPINIONt-1: binary variable which takes the value 1 if the company I receive a qualified audit estimate of year
T-1 and 0 if not.

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• SEIZE: Company size, Napierian logarithm of the active total.εit: the error term and the βi are the coefficients to
be estimated.

RESULTS AND DISCUSSIONS

This study more particularly lies within the scope of countable research into the criterion of audit independence as an
evaluation of audit quality.

This research requires an empirical approach following panel econometrics. For that, it is essential that all types
of analysis start with some basic and descriptive statistics.

On the other hand, the dependent variable is measured by the Napierian logarithm “ln” of the amount of the audit
fee. This requires a panel data regression analysis since it represents a statistical technique making it possible to establish a
relationship between an explained variable and explanatory variables. Modeling must then be carried out in the presence of
individual effects (fixed effect model and random effect model finished with the application of the Hausman specification
test) with STATA 10 software.

The concerned population is made up of the SBF 250 indices (118 companies). Part of this information is
available on the basis of Thomson data and the remaining comes from the reference documents andannual reports located
on the Web site www.zonebourse.com . These companies were observed over a 10 year period from 2002 until the year
2011 which occurs around the events of this study. These events took place during 2002 for the post-Enron period and
2003 for the emergence of the French Financial Security Law (LSF). Moreover, the countable data relating to French
companies were worked out according to French local standards for the period between 2002 and 2004, and International
Financial Regulatory Standards (IFRS) for the period between 2005 and 2011.

Table 1: Sample Composition

Number of Companies Number of Selected
Steps
Removed Companies
Initial Sample (SBF 250) 250
Elimination of Financial Institutions 38 212
Élimination of Companies that Lack of Annual
19 193
Reports
Élimination of Companies that Don’t Publish
41 152
Audit Fees
Missing Data 34 118
Final Sample 118

On the level of this stage, one passes from an analysis which describes in detail our variables via a descriptive
technique with another exploratory analysis of the effectiveness of the results carried out on the determinants of the
number of audit fees. This is why this section breaks up into two sections. The first is the single varied analyses, while an
under section contains the multivariate analyses.

Table 2: Descriptive Statistics

Variables Number of Observations Mean Standard Deviation Min Max
Fee 1180 .1526043 1.644423 -3.729702 4.325456
Size 1180 7.157921 2.278438 1.790091 12.12502
Roa 1180 3.127831 8.274496 -66.33 55.27
Liquid 1180 1.5025 1.182536 0.31 14.74
Debt 1180 23.54028 15.79558 0 110.24
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Audit Opinion and Audit Fees after the Scandals of Enron: Empirical Validation in the French Context 9

Table 2 Contd.,
Loss 1180 .3025424 0.4595535 0 1
Invent 1180 36.50547 331.0441 -8.07 8996.4
Receiv 1180 5.170127 11.1726 0.27 373
1big 1180 .7720339 0.4196985 0 1
2big 1180 .3127119 .4637946 0 1
Opinion_N1 1180 .2101695 .4076016 0 1

This table of the descriptive statistics of our sample shows the following results:

The statistical dispersion of variables has been observed starting from the 1180 observations of French companies
during one ten year period from 2002 to 2011.

Our dependant variable, a quantitative variable measured by the Napierian logarithm of the number of audit fees,
varies between -3.729702 and 4.325456. Our sample of 118 companies from the SBF 250 has an average of 0.15 million
Euros in audit fees. Therefore, these companies pay a high amount of expenses on the auditor’s job during the post-Enron
era. This era is characterized by the development of new regulations and professional accounting with a standard deviation
of 1.64, these results show that the auditors of our sample companies have put in an enormous effort in order to accomplish
their task.

Table 3: Estimates by the Fixed, Random Effects and the Model Hausman
Variable Dépendant:Audit Fees
Variables Fixed-Effects Random Effects
Coefficient T-Stat P>│T│ Coefficient Z-Stat P>│Z│
Size .4050964 13.82 0.000* .532467 26.86 0.000
Roa .0005544 0.25 0.799 .0021928 1.04 0.296
Liquid -.0455081 -2.02 0.043** -.0615548 -2.94 0.003
Debt -.0001975 -0.15 0.883 -.0005958 -0.46 0.646
Loss .0521747 1.67 0.096*** .0365903 1.17 0.241
Invent -.0000157 -0.41 0.682 2.95e-07 0.01 0.994
Receiv .0008848 0.78 0.437 .0009686 0.85 0.398
1big .231221 4.12 0.000* .2519797 4.66 0.000
2big -.0176704 -0.37 0.709 .0029692 0.06 0.949
Opinion_N1 .0286604 0.86 0.388 .0332847 1.00 0.318
Cons -2.874548 -13.61 0.000* -3.777649 -24.34 0.000
R2 within 0.1944 0.1933
R2 between 0.8628 0.8627
R2 0.8211 0.8214
Fisher Test 24.79 0.0000
Breusch Pagan Test
2413.50 0.0000
Chi2
Ficher / Wald Chi2 25.38 0.0000 916.85 0.0000
Hausman Test Chi2 94.86 0.0000
Number of
1180
Observations
Significant at Respectively of 1%, 5% et 10%

Results of the Hausman specification test indicate that the P values or probability test is lower than 5%. This
implies that the specific effects are correlated with the explanatory variables, thus it retains the model for the fixed purpose
which is asymptotically not skewed because it is most effective.

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10 Soltani Lynda

Table 4: Estimates by the Fixed Effects

Variables Expected Sign Fixed Effects Model
Coefficient T-Stat P>│T│
Size + .4050964 13.82 0.000*
Roa - .0005544 0.25 0.799
Liquid - -.0455081 -2.02 0.043**
Debet + -.0001975 -0.15 0.883
Loss + .0521747 1.67 0.096***
Invent + -.0000157 -0.41 0.682
Receiv + .0008848 0.78 0.437
1big + .231221 4.12 0.000*
2big + -.0176704 -0.37 0.709
Opinion_N1 + .0286604 0.86 0.388
Cons -2.874548 -13.61 0.000*
R2 within 0.1944
R2 between 0.8628
R2 0.8211
Ficher 25.38 0.0000
Fisher Caractéristique De La Présence D’effets
24.79 0.0000
Spécifiques
Test D’hausman Chi2 94.86 0.0000
Nombre D’observation 1180
Significant at Respectively of 1%, 5% et 10%

In this part, we present the empirical results received from our econometric model presented so above, by
analyzing the results of coefficients of the model variable. The econometric results were related to the determinant of the
number of audit fees.

The signs of the coefficients estimated for most of our variables are similar to those expected. A plus coefficient
increases the number of audit fees, just as a negative value varies conversely and decreases it.

This table presents the coefficients of the various variables and their probabilities indicating the significance of
the reports and the influences of the explanatory variables on the explained variable.

All the more, the presented results of statistical regression show that the considered model has an explanatory
power of 82.11% and is overall significant since the results of Fisher’s exact test equalize to 25.38 and are significant with
a threshold of 5%. Therefore one can draw the following conclusions:

Variables of the Financial Health of the Company

Company Output

However, an examination of the above table indicates that the variable output of the company (ROA) is of a very weak
value that even appears to not have an effect on the number of audit fees. Therefore, there does not exist an association
between these two variables.

Moreover, the coefficient associated with the variable ROA is very low with a value which tends towards (0.0005)
and is non-significant (P = 0,799).

This result is not consistent with the results of the studies of (Jong-Hag Choi, Jeong-Good Kim, and Yoonseok
Zang, 2006; Goodwin-Stewart and Kent, 2006;Broye, 2009) which showed that credit output indicates a level of

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Audit Opinion and Audit Fees after the Scandals of Enron: Empirical Validation in the French Context 11

profitability for the company and that the auditors require higher fees from the least profitable firms. This consequently
negatively influences these expenses granted to auditors.

Liquidity

An examination of the table above indicates that the variable liquid is statistically significant with a threshold of 5% and a
negative effect on the number of audit fees. This last decreases according to the liquidity level of the company.

Moreover, the coefficient associated with the variable liquid has a value of -0,045 and is significant (P = 0,043).
Indeed, a reduction of 10% in company liquidity would involve an increase of 0.45% in the number of audit fees.

This result is consistent with the results of the studies of (Simunic 1980; Jong-Hag Choi, Jeong-Good Kim, and
Yoonseok Zang, 2006) which showed that liquidity is an indicator of solvency by presenting the aptitude of the company to
refund its raising debts. An increase in this variable decreases the level of risk and ensures the protection of the company’s
financial situation and thus the auditors have less effort with less losses than in contrary cases. Consequently, the liquidity
of the firm positively influences the auditor’s expenses.

Debt

An examination of the table above indicates that the debt variable of the company has a very weak value and does not have
an effect on the number of audit fees. Therefore, there does not exist an association between these two variables.

Moreover, the coefficient associated with the variable debt is of a value which tends towards –(0.0002) and is
non-significant (P = 0,883).

This result is not consistent with the results of the studies of (Evils, 2006, Simunic and Stein, 1996) which showed
that the risk of the audited firm is measured through the level of company debt. This can increase the risk of loss for the
company, which positively results in the requirement of a large effort by the auditors. Thus expenses granted to the
auditors are consequently influenced.

Loss

An examination of the table above indicates that the variable loss is statistically significant with a threshold of 10% and a
positive effect on the number of audit fees. This effect decreases according to the liquidity level of the company.

Moreover, the coefficient associated with the variable loss is of a value of 0,052 and is significant. (P = 0,096).
Indeed, the existence of a loss at the company would involve an increase in the amount of audit fees.

This result is consistent with the results of the studies of (Simunic and Stein,1996; Eterson and Zéghal, 1994;
Pong and Whittington, 1994) which showed that the amount of audit fees increases with the disturbance of the company’s
financial situation, particularly if there is accounting disaster at the audited firm. Consequently, the expenses of the
auditors are positively influenced.

Complexity of the Customer Company

Inventory Turnover

An examination of the table above indicates that the variable invents of the company has a very weak value and is not significant.
It does not have an effect on the number of audit fees, so there does not exist an association between these two variables.

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12 Soltani Lynda

Moreover, the coefficient associated with the variable invent is of a value which tends towards (0.00001) and is
non-significant (P = 0,682).

This result is not consistent with the results of the studies of (Francis and Simon 1987; Lawrence J. Abbott, Susan
Parker, Gary F. Peters and K. Raghunetan 2003; Abbott al. 2003;Piot, 2001;Kane and Velury,2004) which showed that
the complexity of the audited firm requires a large effort and thus, an increase in audit fees positively influences these
expenses granted to the auditors.

Receivables Turnover

An examination of the table above indicates that the output variable receiv has a very low value to the point that it
does not have an effect on the number of audit fees Therefore, there does not exist an association between these two
variables.

Moreover, the coefficient associated with the variable receiv is very low with a value which tends towards (0.0009) and is
non-significant(P = 0,437).

This result is not consistent with the results of the studies of (Francis and Simon, 1987; Lawrence J. Abbott,
Susan Parker, Gary F. Peters and K. Raghunetan,2003; Abbott al. 2003;Piot, 2001;Kane and Velury,2004) which showed
that the complexity of the audited firm requires a large effort and thus, an increase in audit fees positively influences these
expenses granted to the auditors.

Characteristics of the Audit

Auditor Identity

An examination of the table above indicates that the variable 1big is statistically significant with a threshold of 1% and has
a positive effect on the number of audit fees. This effect increases according to the size of the auditor’s office.

Moreover, the coefficient associated with the variable 1big is of a value of 0.23 and is significant (P = 0,000).
Indeed, the existence of an auditor within the company who belongs to the global area network would involve an increase
in the number of audit fees.

This result is consistent with the results of the studies of (Firth, 1979; Clarkson and, al.2003) which showed that
large auditing offices indicate good audit quality and consequently, positively influences the number of audit fees.

Joint audit Membership for in the BIG Four

An examination of the table above indicates that the company variable 2big is not significant and has a negative effect on
the number of audit fees. This effect falls as there is a large increase within the system of regulatory co-managers for the
accounts of the company.

Moreover, the coefficient associated with the variable 2big has a value of -0.02 and is non-significant (P = 0,709).
Indeed, the absence of regulatory Joint audit within the company would involve an increase in the number of audit fees.

This result is not consistent with the results of the studies of (Evils, 2004, which showed that the existence of
more than one big auditor within the company positively increases the number of audit fees and consequently influences
these expenses granted to the auditors.

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Audit Opinion and Audit Fees after the Scandals of Enron: Empirical Validation in the French Context 13

Audit Opinion of the Previous Year

An examination of the table above indicates that the output variable opinion_n-1 has a positive effect on the number of
audit fees, but is not significant. This effect increases with the existence of a qualified audit estimate.

Moreover, the coefficient associated with the variable opinion_n-1 has a value of 0.03 and is non-significant (P =
0,388). Indeed, the existence of a qualified audit estimate would involve an increase in the number of audit fees.

This result is not consistent with the results of Simunic, D.A., 1980, which showed that the risk and the anomalies
detected in one year can occur in the following year. This requires a large effort and thus an increase in audit fees. This
positively influences these expenses granted to the auditors.

Company Size

An examination of the table above indicates that the variable size is statistically significant with a threshold of 1% and has
a positive effect on the number of audit fees. This effect increases according to company size.

Moreover, the coefficient associated with the variable size has a value of 0.40 and is significant (P = 0,000).
Indeed, an increase of 10% in company size would involve an increase of 4.05% in the number of audit fees.

This result is consistent with the results of the studies of (Simunic 1980; Palmrose 1986a; Firth,1985; Clarkson and al.,
2003) which showed that the level the effort of auditors increases within companies of big sizes. Consequently, having a very
significant number of financial transactions checked within the company positively influences the expenses of the auditor.

Indeed, one initially notes a significant association between the amount of audit fees company liquidity and company
losses that show the auditor must increase his effort as there is an increase in the disturbance of the company’s financial situation.

This association is absent with company output and debt as with the complexity of the company. One can
conclude that in our studied context no effect has been observed between the number of audit fees and the weight of the
stock and claims of the audited company.

All the more, a strong, significant and positive association is found between the number of audit fees and the
membership of the auditor in a global area network. This shows that the presence of a BIG Four auditor reinforces audit
fees. On the other hand, one does not find a bond with the existence of a qualified audit estimate made the previous year
and the membership of the regulatory Joint audit for the accounts having offices with the BIG four.

Finally, it can be noted that there exists an association with the organizational factor of company size. This shows
that large company auditors work hard. To explain these results, we will present in the following section an interpretation.

CONCLUSIONS

As a fundamental criterion of audit quality, auditor independence raises several questions. To ensure this characteristic of
audit quality, several regulations have attempted to improve it by protecting the reliability and the transparency of financial
information and accountants. Audit fees reflect information on audit quality and its level of independence by offering
confidence in financial statements to the investors.

Our second chapter attempts to investigate the determinants of audit fees as a criterion of independence by
reflecting the company risk levels. This requires enormous efforts carried out by the auditor and a large amount of wealth
associated with a high amount of audit fees.

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14 Soltani Lynda

Within the framework of this research, we initially examined the effect of the organizational factors of the
company. In particular, we looked at its size, financial situation, level of complexity and finally audit characteristics. By
analyzing our output model, we found of the literature results conform with our findings with regard to two variables
constituting the financial statement of company liquidity and losses, as well as company size and membership of the
auditor in a global area network.

On the other hand, other variables are contrary to our findings. The existence of two big four regulatory Joint
audits for the accounts and the qualified audit estimate from previous years do not have any effect nor any association with
the number of audit fees. These factors regard the level of company complexity noting inventory turnover and the rotation
of the clients' account along with company output and its level of debt.

In conclusion, the study of the determinants of the number of audit fees after the financial scandals shows that audit
fees are related to the amplification of the disturbance of the financial situation. These same fees are strongly associated with the
membership of the auditors in the BIG Four and the audited company size This shows that in this context auditors exert more
effort than requires the increase in their expenses and reflects the best audit quality and auditor independence.

The high audit fees perceived by the auditor reflect the prediction of fraud by certifying the accounts, giving a
faithful and sincere image through financial statements, formulating an audited estimate and creating an effect on the
quality of the results and the transparency of the financial information.

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Impact Factor (JCC): 6.2543 NAAS Rating 3.51